Equip your employees for retirement readiness

One quarter of US adults have no retirement savings and only 36% feel their retirement planning is on track, according to our most recent report on retirement benefits. Why should this matter to employers? Employees who aren’t prepared financially tend to be more stressed and distracted at work, which can negatively impact productivity and affect retention. Also, one of the keys to attracting and retaining top talent is offering a broad spectrum of benefits, including the tools to plan for retirement.

Last year, I sat down with some pre-retirees to talk about their retirement income. Each employee knew how much they had in total savings and what was going into their accounts each pay period, but they didn’t know what that meant in the longer term. We worked together to put the pieces down on paper and make sure we were talking apples to apples. They thought about their finances from a monthly perspective, so we worked together to calculate the 401(k) lump sum as an estimated monthly income, added in Social Security and the projected pension they’d receive and came up with their anticipated monthly income. They were astounded when they saw this number. They had actually saved enough and could feasibly retire as soon as they wanted.?

I previously shared an article about how to help employees estimate their retirement income by getting their attention with lifetime income estimates and evaluating plan design changes. Here’s another idea for helping your employees gauge their retirement readiness — give them access to the tools and education needed to estimate their replacement income ratio.?

You can find a multitude of formulas for what the typical replacement ratio percentage should look like. What’s more important for your employees is a clear understanding of what their assets are projected to be, how that translates into annual income, how long they can anticipate this income to last and how it stacks up against their desired lifestyles.?

In my experience,? many employees don't stop to think about their lifetime income — Social Security benefits are monthly projections, yet pension and 401(k) are typically lump sums. There’s also the chance that an employee may convert lump sums to a guaranteed income product in the future. How do these moving pieces play out in retirement? This is where you can step in — help your employees assess their retirement assets and plan their retirement income using a reliable forecasting tool.?

You may already provide the tools, calculators and education, but how do you encourage your employees to think about the implications of these calculations? The key takeaway here is that employers need to help employees make a mindset shift.?

Here’s how you can help your employees get a sense of their real retirement readiness:?

1. Educate them about the main components typical in retirement, i.e., defined contributions (which tend to be accumulations of assets) and defined benefits (which tend to be more annuity-type).?
2. Tie each component into one projection tool to help illustrate what they potentially could have when they retire, and coach them on how to address gaps.
3. Help them set reminders to check in periodically. And for those nearing retirement, offer resources to help them turn their retirement savings into lifetime income.

Some of the employees I worked with are able to retire earlier than they might have previously thought. Some decided to remain in the workforce for a few more years to funnel money into a 401(k), HSA or emergency savings. Others now have the knowledge to make changes to help close the gaps. Either way, they were empowered to manage their own futures.?

What’s working well at your organization when it comes to retirement readiness? Happy to hear your thoughts on this.